Article
Navigating tax relief after disasters: Understanding casualty loss deductions
March 5, 2025 · Authored by Lauren Haverlock, Cynthia Becker
Casualty losses caused by sudden or unexpected events, such as the 2025 California wildfires, can leave homes and vehicles destroyed, and businesses inoperable for a multitude of reasons.
In situations such as these, there might be opportunities to seek tax relief to ease the financial burden through enhanced deductions, income exclusion, and extended filing and payment deadlines.
By understanding the qualifying criteria, exclusions, and calculation methods outlined in Internal Revenue Code (IRC) Section 165 and related Treasury Regulations, taxpayers can navigate the process more effectively.
Casualty losses
Casualty losses can provide relief to individuals and businesses who suffer property damage or destruction due to unforeseen events. The IRC Section 165 and related Treasury Regulations establish the framework for understanding what constitutes a casualty loss and when taxpayers can claim deductions.
Understanding casualty losses and their application
The IRS allows taxpayers to deduct losses resulting from sudden, unexpected, or unusual events. These events include natural disasters, thefts, and accidents that damage or destroy property. For a loss to qualify, it must be:
- Physical. Casualty losses apply to tangible property damage.
- Identifiable. The loss must stem from a specific and identifiable event, such as a fire, hurricane, or earthquake.
- Sudden, Unexpected, and Unusual. This means the event occurs quickly, not gradually over time, it wasn’t anticipated or intended by the taxpayer, and isn’t part of normal daily activities or wear and tear.
What doesn’t qualify as a casualty loss?
Certain types of property damage or loss are excluded under IRC Section 165. These include:
- Progressive Deterioration. Damage caused by wear and tear, rust, corrosion, or termites doesn’t qualify.
- Voluntary Acts.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.